There are times when forecasting the Indiana economy seems pretty easy. All you need to do is make two short lists. In one column, write down what pieces of the national economy are performing well. Next to that, make another column with the industries and activities that are especially important to our state. If it’s a good year, you’ll be able to draw lines connecting items on each list. If it’s a great year, you’ll draw a lot of them. And if it’s a bad year, you’ll have nothing but white space.

It is forecasting season, and plenty of prognosticators – including a few of us from Ball State University, thank you very much – have been standing up in front of audiences to deliver our best guess about how we think the year 2005 will unfold for the economy. Like most years, we serve up long lists of things to be worried about, like deficits, energy prices, and global terrorism.

It’s part of our psyche as forecasters, I suppose, to call it both ways. Our forecasts of 2005 are generally upbeat, but we dwell so much on all the things that could go wrong for the economy next year that we’re covered there, too.

But when it comes to Indiana, in the short run at least, it still comes down to those two lists. How many connections can we make?

As we march towards the end of 2004, the answer is: quite a few. In fact, you’d be hard pressed to come up with a better setting for recovery in the Indiana economy than what is unfolding in the national economy at this very moment.

The biggest news is that the manufacturing economy is quietly enjoying the best year since 2000. The Federal Reserve’s announcement that its industrial production index for manufacturing grew by 0.7 percent in October continues an upward surge in factory output that is now seventeen months running. Output has now climbed all of the way back from its pre-recession level, and additions to capacity are beginning to occur in industries that are key customers to many Indiana businesses.

And the pattern of growth within manufacturing brings even more good news. Economists measure the importance of different individual industries in individual states with a handy little statistic called a location quotient. When the quotient exceeds one, it tells you that the industry is more prevalent in your state than the national average.

The location quotient for the primary metals industry in Indiana is 5.5. That means that this industry is five and a half times more concentrated here than the national average. And how is the industry doing nationally? Very well, thank you. Prices, production, and profits are all up sharply. Transportation equipment, with a quotient of 5.3, is not quite as robust, but remains up 3.5 percent from 2003. And industrial machinery production, with a location quotient of 1.75, is up a whopping 13.5 percent from year-ago levels.

Not all of the high-flying sectors in manufacturing have an important presence here. Computers and electronic products are booming nationally, yet their location quotient of 0.5 in Indiana speaks of their comparative absence in our economy. And the furniture industry, still quite prevalent in our state, continues to struggle just to maintain output at 1997 levels.

But this is a story about output, not jobs. And if you’re one of those whose dour gaze is rigidly focused on the shrinking share of factory jobs in the economy, let me tell you a little secret. There’s a whole lot of jobs outside of manufacturing – from writing technical manuals to drawing up contracts to driving trucks – that owe their existence to what manufacturers do. And for now, at least, they’re doing pretty well.

Patrick Barkey is director of the University of Montana Bureau of Business and Economic Research. He has been involved with economic forecasting and health care policy research for over twenty-four years, both in the private and public sector. He served previously as Director of the Bureau of Business Research (now the Center for Business and Economic Research) at Ball State University, overseeing and participating in a wide variety of projects in labor market research and state and regional economic policy issues. He attended the University of Michigan, receiving a B.A. ('79) and Ph.D. ('86) in economics.

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